The Basel Committee on Banking Supervision (BCBS) finalised its Pillar 2 capital framework for Interest Rate Risk in the Banking Book (IRRBB) in April 2016. The new framework replaces its previous version from 2004 and sets out nine principles for banks and three principles for supervisors for the management and supervision of IRRBB. FINMA proposed in a consultation in Q4 2017 to adapt IRRBB in Switzerland effective 1 January 2019.
To read more about the FINMA implementation of IRRBB, the action points for banks and how PwC can help click on the following link:
Your contacts at PwC
Andrea Martin Schnoz
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Dr Manuel Plattner
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Philip van Hövell
Senior Manager –
Data Analytics & Modelling
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Dr Sebastian Gerigk
Senior Manager Advisory
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In October 2017 the Basel Committee on Banking Supervision (BCBS) issued guidelines on the identification and mitigation of step-in risk.
The guidelines are designed to mitigate potential spill-over effects from the shadow banking system to banks, and will have to be implemented by 2020 at the latest.
Implementing the requirements to comply with the BCBS step-in risk guidelines is complex, and banks with global operations will have to launch their implementation projects well ahead of the final implementation date.
PwC is available to discuss the guidelines with you and walk you through our approach, which addresses the requirements of step-in risk through potential amendments to terms and conditions (T&Cs) and the suitability of products for investors. Additionally, you will need to make changes to your risk governance and policies so that step-in risk can be reduced ahead of the go live date.
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Two FINMA circulars currently set out the disclosure requirements for banks and securities dealers for each supervisory category. The new FINMA Circular 2016/1 has a transitional period that extends until the beginning of 2019. It will fully replace the current FINMA Circular 2008/22 and has already been revised since it was first published at the beginning of 2016. Regulatory disclosures will remain on the move for the foreseeable future as a further revision is already underway with publication anticipated for the beginning of 2018.
The new requirements have been aligned to the enhanced international standards (Basel III framework). As a general rule and in line with the Basel framework, institutions in supervisory categories 4 and 5 are exempt from detailed disclosures, and disclosures are limited to specific areas. However, systemically relevant, large and medium-sized institutions in supervisory categories 1 to 3 are subject to the full disclosure requirements.
We can offer you the following support during your implementation project
The challenges for your institution (whether a bank, securities dealer or financial group) are multifaceted. The principles that apply to the specific institution and the scope of disclosure must be established. The fixed and flexible disclosures should then be specified so that these can subsequently be applied in data management, information technology and in the reporting processes. Internal controls should also be adapted, and possibly extended, to satisfy the disclosure requirements, as they must be comparable with those applied in the publication of the annual standalone and consolidated financial statements.
The new requirements broaden the scope and increase the complexity of the information to be published by all institutions. The 2017 annual report must for the first time include disclosures on corporate governance as well as meeting the additional information requirements concerning capital resources and liquidity. PwC has addressed in detail the new requirements and the additional changes that will take effect from mid-2018.
We would be happy to assist you in evaluating the disclosure requirements that specifically apply to your institution, documenting or assessing your disclosure concept and/or the new disclosure report, interpreting supervisory regulations, evaluating whether disclosures have been performed correctly as part of a quality review, or in reassessing disclosure requirements resulting from the revised circular effective from mid-2018.
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As part of the Financial Stability Board’s efforts to tighten up the monitoring and regulation of the shadow banking sector, the Basel Committee has revised the capital adequacy requirements for ‘equity investments in all types of funds’ that are held in the banking book.
In order to implement the resulting changes in international standards, the Federal Council decided to revise the Capital Adequacy Ordinance (CAO). On the basis of this, the Swiss Financial Market Supervisory Authority (FINMA) published on 7 December 2016 its revised circular 2017/7 ‘Credit risks – banks’.
The circular entered into force as of 1 January 2017 with a one-year transitional period.
Which investments are affected?
A definition of “equity investments in all types of funds” had to be found to implement the requirements in Switzerland.
The term “collective investment scheme” as applied in Swiss legislation falls short in this sense. It provides for exceptions for investment companies that according to the international standards are covered by the term ‘all types of funds’ and thus fall within the scope of application of these rules.
Accordingly, the Swiss legislation has introduced the term “managed collective assets” (MCA) in art. 66 para. 3bis CAO and margin no. 333 ff of the FINMA circular. The new rules concerning MCA held in the banking book are valid for all equity investments in managed collective assets, irrespective of the domicile and the legal form, and especially for mutual funds and exchange-traded funds (ETFs). The rules also apply to investment companies and foundations set up under foreign legislation for the purpose of managing collective assets. However, the scope of application does not include occupational benefit schemes.
Besides the usual investments in collective investment schemes, banks and securities dealers often have investments in private equity and other alternative investment vehicles. Frequently, these cannot be assigned directly to a specific investment category based on their description and because they are set up in offshore domiciles. Most of these forms of investment qualify as listed and unlisted investment companies or contractually managed investment funds, which means that the new capital adequacy rules for MCA apply to them.
What about the new risk-weighting rules for collective assets, challenges and your benefits?
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